A record dated July 17, 2020, examining Japan’s controversial Go To campaign, the difficult balance between infection control and economic activity, and the danger that the loss of businesses, employment, skilled workers, and accumulated technology would permanently weaken the country’s potential growth.
Although tourism demand has since recovered, persistent labour shortages show that preserving and rebuilding Japan’s productive capacity remains a central economic challenge.

July 17, 2020
Criticising the government may provide emotional satisfaction, but it does nothing to lessen the severity of the economic crisis.
Not only tourism and accommodation, but also service industries that depend upon direct human contact are reaching an impasse, and employment is about to be lost.
The following is taken from “Will the Japanese Economy Return to Square One?”, published today in the Nihon Keizai Shimbun column “Oiso Koiso.”
The Go To campaign was intended to revive travel spending, which had fallen sharply because of the novel coronavirus.
However, as it coincided with a renewed spread of the virus, criticism grew that encouraging travel might further spread infections.
Criticising the government may provide emotional satisfaction, but it does nothing to lessen the severity of the economic crisis.
Not only tourism and accommodation, but also service industries that depend upon direct human contact are reaching an impasse, and employment is about to be lost.
An annualised rate of 0.13 percent.
That was the Bank of Japan’s estimate of Japan’s potential growth rate for the second half of fiscal 2019.
The potential growth rate represents the rate at which an economy can grow when its available labour, equipment, and other productive resources are fully utilised.
It had fallen below zero after the global financial crisis.
Under the administration of Prime Minister Shinzo Abe, the number of women and elderly people participating in the workforce increased, and the potential growth rate recovered to 1.06 percent in the first half of fiscal 2014.
Gradually, however, the economy lost momentum.
With the direct impact of the coronavirus, there was a strong possibility that the potential growth rate had again fallen below zero in the first half of fiscal 2020.
People sought to avoid contact with one another and withdrew into their homes.
Services based upon direct interaction between people suffered a severe decline.
The resulting fall in demand did not end there.
It also induced a contraction in supply.
As the coronavirus outbreak continued, companies had little choice but to reduce capital investment and cut employment.
When sales disappeared and there was no prospect of eliminating continuing losses, businesses themselves were forced to close.
As a result, skilled employees who had worked for many years and technologies that companies had accumulated over time were lost.
Even if demand subsequently recovered, supply would be unable to respond, leaving economic activity at a permanently depressed level.
That is the kind of new normal represented by a negative potential growth rate.
The government was probably attempting to reopen the economy because it wished to prevent demand and supply from falling together in a downward spiral.
The Go To campaign was a typical example, but the purpose of that policy was not being communicated effectively to the public.
Naturally, online meetings, online shopping, and other forms of digital activity accelerated during the coronavirus crisis.
The stock market was inclined to focus upon the advantages of those developments.
It was also understandable that policymakers advocated digital transformation――the reform of society and business through digital technology.
Nevertheless, the negative potential growth rate revealed the weakness of the economy’s underlying strength.
As it was no longer possible simply to return to the conditions that existed before the coronavirus, the question was how to prevent further downward pressure upon employment and corporate activity.
Japan had to prevent its economy from returning to the old condition of negative growth.